Fair Value Option

6 Months Ended

Jun. 30, 2018

Fair value option

For a discussion of the primary financial instruments for which the fair value option was elected, including the basis for those elections and the determination of instrument-specific credit risk, where relevant, refer to Note 3 of JPMorgan Chase’s 2017 Annual Report.

Changes in fair value under the fair value option election

The following table presents the changes in fair value included in the Consolidated statements of income for the three months ended June 30, 2018 and 2017, for items for which the fair value option was elected. The profit and loss information presented below only includes the financial instruments that were elected to be measured at fair value; related risk management instruments, which are required to be measured at fair value, are not included in the table.



	Three months ended June 30,
	2018										2017
(in millions)	Principal transactions			All other income				Total changes in fair value recorded ^(e)			Principal transactions			All other income				Total changes in fair value recorded ^(e)
Federal funds sold and securities purchased under resale agreements	$	(33	)	$	—			$	(33	)	$	(12	)	$	—			$	(12	)
Securities borrowed	29			—				29			13			—				13
Trading assets:
Debt and equity instruments, excluding loans	(259		)	1			^(c)	(258		)	334			2			^(c)	336
Loans reported as trading assets:
Changes in instrument-specific credit risk	214			(1		)	^(c)	213			69			9			^(c)	78
Other changes in fair value	29			65			^(c)	94			43			229			^(c)	272
Loans:
Changes in instrument-specific credit risk	(1		)	—				(1		)	—			—				—
Other changes in fair value	(1		)	—				(1		)	1			3			^(c)	4
Other assets	—			(3		)	^(d)	(3		)	3			(16		)	^(d)	(13		)
Deposits^(a)	129			—				129			(86		)	—				(86		)
Federal funds purchased and securities loaned or sold under repurchase agreements	9			—				9			(3		)	—				(3		)
Short-term borrowings^(a)	(162		)	—				(162		)	43			—				43
Trading liabilities	6			—				6			—			—				—
Beneficial interests issued by consolidated VIEs	—			—				—			—			—				—
Long-term debt^(a)(b)	196			—				196			(170		)	—				(170		)



	Six months ended June 30,
	2018										2017
(in millions)	Principal transactions			All other income				Total changes in fair value recorded^(e)			Principal transactions			All other income				Total changes in fair value recorded^(e)
Federal funds sold and securities purchased under resale agreements	$	(26	)	$	—			$	(26	)	$	(33	)	$	—			$	(33	)
Securities borrowed	2			—				2			90			—				90
Trading assets:				—
Debt and equity instruments, excluding loans	(445		)	1			^(c)	(444		)	695			2			^(c)	697
Loans reported as trading assets:				—
Changes in instrument-specific credit risk	336			4			^(c)	340			243			15			^(c)	258
Other changes in fair value	70			(25		)	^(c)	45			77			352			^(c)	429
Loans:				—
Changes in instrument-specific credit risk	(1		)	—				(1		)	(1		)	—				(1		)
Other changes in fair value	(2		)	—				(2		)	1			3			^(c)	4
Other assets	2			(10		)	^(d)	(8		)	7			(22		)	^(d)	(15		)
Deposits^(a)	339			—				339			(245		)	—				(245		)
Federal funds purchased and securities loaned or sold under repurchase agreements	19			—				19			2			—				2
Other borrowed funds^(a)	111			—				111			(431		)	—				(431		)
Trading liabilities	(1		)	—				(1		)	(1		)	—				(1		)
Beneficial interests issued by consolidated VIEs	—			—				—			—			—				—
Other liabilities	—			—				—			—			—				—
Long-term debt^(a)(b)	1,227			—				1,227			(923		)	—				(923		)

(a)

Unrealized gains/(losses) due to instrument-specific credit risk (DVA) for liabilities for which the fair value option has been elected is recorded in OCI, while realized gains/(losses) are recorded in principal transactions revenue. Realized gains/(losses) due to instrument-specific credit risk recorded in principal transaction revenue were not material for the three and six months ended June 30, 2018 and 2017, respectively.


(b)	Long-term debt measured at fair value predominantly relates to structured notes. Although the risk associated with the structured notes is actively managed, the gains/(losses) reported in this table do not include the income statement impact of the risk management instruments used to manage such risk.


(c)	Reported in mortgage fees and related income.


(d)	Reported in other income.


(e)	Changes in fair value exclude contractual interest, which is included in interest income and interest expense for all instruments other than hybrid financial instruments. For further information regarding interest income and interest expense, refer to Note 6.

Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding

The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding as of June 30, 2018, and December 31, 2017, for loans, long-term debt and long-term beneficial interests for which the fair value option has been elected.



	June 30, 2018								December 31, 2017
(in millions)	Contractual principal outstanding			Fair value		Fair value over/(under) contractual principal outstanding			Contractual principal outstanding			Fair value		Fair value over/(under) contractual principal outstanding
Loans^(a)
Nonaccrual loans
Loans reported as trading assets	$	4,078		$	1,159	$	(2,919	)	$	4,219		$	1,371	$	(2,848	)
Loans	—			—		—			39			—		(39		)
Subtotal	4,078			1,159		(2,919		)	4,258			1,371		(2,887		)
All other performing loans
Loans reported as trading assets	46,105			44,718		(1,387		)	38,157			36,590		(1,567		)
Loans	3,167			3,076		(91		)	2,539			2,508		(31		)
Total loans	$	53,350		$	48,953	$	(4,397	)	$	44,954		$	40,469	$	(4,485	)
Long-term debt
Principal-protected debt	$	29,380	^(c)	$	25,563	$	(3,817	)	$	26,297	^(c)	$	23,848	$	(2,449	)
Nonprincipal-protected debt^(b)	NA			24,533		NA			NA			23,671		NA
Total long-term debt	NA			$	50,096	NA			NA			$	47,519	NA
Long-term beneficial interests
Nonprincipal-protected debt	NA			$	1	NA			NA			$	45	NA
Total long-term beneficial interests	NA			$	1	NA			NA			$	45	NA


(a)	There were no performing loans that were ninety days or more past due as of June 30, 2018, and December 31, 2017, respectively.

(b)

Remaining contractual principal is not applicable to nonprincipal-protected notes. Unlike principal-protected structured notes, for which the Firm is obligated to return a stated amount of principal at the maturity of the note, nonprincipal-protected structured notes do not obligate the Firm to return a stated amount of principal at maturity, but to return an amount based on the performance of an underlying variable or derivative feature embedded in the note. However, investors are exposed to the credit risk of the Firm as issuer for both nonprincipal-protected and principal protected notes.


(c)	Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflects the contractual principal payment at maturity or, if applicable, the contractual principal payment at the Firm’s next call date.

At June 30, 2018, and December 31, 2017, the contractual amount of lending-related commitments for which the fair value option was elected was $10.9 billion and $7.4 billion, respectively, with a corresponding fair value of $(225) million and $(76) million, respectively. For further information regarding off-balance sheet lending-related financial instruments, refer to Note 27 of JPMorgan Chase’s 2017 Annual Report, and Note 20 of this Form 10-Q.

Structured note products by balance sheet classification and risk component

The following table presents the fair value of the structured notes issued by the Firm, by balance sheet classification and the primary risk type.



	June 30, 2018								December 31, 2017
(in millions)	Long-term debt		Short-term borrowings		Deposits		Total		Long-term debt		Short-term borrowings		Deposits		Total
Risk exposure
Interest rate	$	22,895	$	120	$	8,352	$	31,367	$	22,056	$	69	$	8,058	$	30,183
Credit	3,976		1,134		—		5,110		4,329		1,312		—		5,641
Foreign exchange	2,801		91		39		2,931		2,841		147		38		3,026
Equity	19,688		6,969		6,891		33,548		17,581		7,106		6,548		31,235
Commodity	259		13		2,256		2,528		230		15		4,468		4,713
Total structured notes	$	49,619	$	8,327	$	17,538	$	75,484	$	47,037	$	8,649	$	19,112	$	74,798

- Definition

The entire disclosure for a company's election to apply the fair value option for measurement and reporting of eligible financial assets and liabilities (as defined), as well as certain other eligible items (as defined) included in the statement of financial position, whether such option is elected for a single eligible item or a group of similar eligible items and is in addition to other disclosures concerning fair value which the company may be required to provide. Such disclosure might be expected to include: (1) for items included in the statement of financial position: (a) the reasons for electing a fair value option for each eligible item or group of similar eligible items; (b) if the fair value option is elected for some but not all eligible items within a group of similar eligible items: (i) a description of those similar items and the reasons for partial election and (ii) information of how the group of similar items relates to individual balance sheet line items; (c) for each line item in the statement of financial position that includes an item or items for which the fair value option has been elected: (i) information of how each line item in the statement of financial position relates to major categories of assets and liabilities presented in accordance with other fair value disclosures and (ii) the aggregate carrying amount of ineligible items included in each line item in the balance sheet, if any; (d) the difference between the aggregate fair value and the aggregate unpaid principal balance (assuming contractual principal amounts and fair value option elected) of: (i) loans and long-term receivables (other than securities otherwise reported at fair value) and (ii) long-term debt instruments; (e) for loans held as assets for which the fair value option has been elected: (i) the aggregate fair value of loans that are 90 days or more past due, (ii) if the policy is to recognize interest income separately from other changes in fair value, the aggregate fair value of loans in nonaccrual status, and (iii) the difference between the aggregate fair value and the aggregate unpaid principal balance for loans that are 90 days or more past due, in nonaccrual status, or both; (f) for investments that would have been accounted for under the equity method if the entity had not chosen to apply the fair value option, the information required for such investments, if material either individually or in the aggregate; (2) for items included in the income statement: (a) the amounts of gains and losses from fair value changes included in earnings and in which line in the income statement those gains and losses are reported whether or not combined with gains and losses from items required to be accounted for at fair value; (b) a description of how interest and dividends are measured and where they are reported in the income statement; (c) for loans and other receivables held as assets: (i) the estimated amount of gains or losses included in earnings attributable to changes in instrument-specific credit risk and (ii) how the gains or losses attributable to changes in instrument-specific credit risk were determined; (d) for liabilities with fair values that have been significantly affected during the reporting period by changes in the instrument-specific credit risk: (i) the estimated amount of gains and losses from fair value changes included in earnings that are attributable to changes in the instrument-specific credit risk, (ii) qualitative information about the reasons for those changes, and (iii) how the gains and losses attributable to changes in instrument-specific credit risk were determined; and (3) certain other disclosures as required or determined to be provided.

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